BEERG Newsletter - EU: ESG rules to be enforced on overseas companies?

The European Parliament will push to require about 28,000 foreign firms to comply with the Union’s environmental, social and governance (ESG) rules. US corporations had wanted subsidiaries exempt from the disclosure rule. In a wide-reaching overhaul of reporting requirements for non-financial firms, the parliament has decided that a planned exemption that had been backed by the American Chamber of Commerce to the European Union should be dropped, according to draft documents seen by Bloomberg, which comments that the EU hopes that its rules for ESG standards become a global benchmark. 

Meanwhile, in a significant policy change the EU plans to provide for sanctions in future trade agreements if commitments on environmental and labour standards are breached. Up until now, sanctions had been ruled out. Sabine Weyand, the Director-General for the European Commission’s Directorate-General for Trade, told MEPs about the policy change during a session of the international trade committee on Tuesday (22 March).

Laying out the Commission’s emerging thinking, Weyand said there would be an emphasis on tailoring these objectives to the needs of the partner. This would mean that the provisions and objectives to be presented to New Zealand would not be the same as those that will be negotiated with Indonesia “where we will need a different approach.”

Weyand also said that sanctions could be considered “as a last resort” when it comes to violations of core commitments. Such core commitments could include a failure to implement the spirit of various International Labour Organisation conventions and the Paris Agreement on climate.

Any sanctions for non-compliance would kick in following a panel ruling and a “reasonable period of compliance”. “If at the end there is no agreement, there are sanctions,” Weyand said, emphasising that cooperation and dialogue should be “watchwords” and that “only through engagement can change be instilled”.